There may be times when demand exceeds available output under conditions of high employment and thus may give rise to inflation. In such situations, restrictive conditions may be needed to reduce demand. This intervention by the government is considered as

Stabilisation function of the government.

The correct answer is Option (3) → Stabilisation function of the government.

The scenario described—where the government uses restrictive conditions (like reducing spending or raising taxes) to lower aggregate demand and control inflation during a period of high employment and demand exceeding output (an economic boom)—is the core responsibility of the Stabilisation function of the government.

Here is the breakdown of the major functions of a government budget (or fiscal policy):

1. Allocation function: Deals with the provision of public goods (like national defense, public parks) and merit goods, and correcting market failures (like externalities).

2. Redistribution function: Deals with achieving a "fair" distribution of income and wealth through progressive taxes, subsidies, and transfer payments.

3. Stabilisation function: Deals with managing the overall level of aggregate demand in the economy to prevent major fluctuations and achieve macroeconomic goals, primarily full employment and price stability (controlling inflation and deflation).